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| Burnt down state bus in Zimbabwe. Fully funded re-insurance cover could protect these public assets. |
Zimbabwe used to be the “Cayman
Islands” style darling of Africa´s insurance industry.
It boasted a life-cover
premium market worth of $600 million at its peak in the 90s.
It even hosted the
Insurance Congress of Developing Countries in 2014.
Now an astonishing decline
has occurred: in 2014 Zimbabwe failed to pay a mere $100 000 premium to the multilateral
financial institution, African Trade Agency (ATI), to cover its exporters in case
of encountering cross-border business risks.
An economy beset by vanishing dollars,
out-of-luck citizens who sometimes attempt to fleece insurance agencies, means
Zimbabwe´s re-insurance sector has entered a “save-our-souls” zone.
Liquidity and lack of money
Insurance, re-insurance is a double-edged
sword in Zimbabwe, arguably Africa´s most stressed economy.
In 2000, the country had three
indigenous reinsurance companies and one foreign branch. In 2017, there are now
seven local players.
Still one foreign branch remain.
Insurance, re-insurance players have
to find a footing in an economy where the de-facto currency, the US dollars, is
rapidly vanishing.
It is being replaced by a domestically limited currency
labelled “Bond note.”
In the same breadth, insurers must have stashes of ready US
dollar cash daily to meet customer demands.
For insurers and re-insurers, the
elephant in the room is a lopsided economy that has chopped off 60% of its
industries, halved down down 40% of its agricultural output since 2001.
Worse, according
to World Bank figures, the economy sent 80% of its citizens into biting
unemployment.
Zimbabwe´s commercial banks are mandated by gobbling cash crisis
to dispense only $US80 a day to clients while re-insurance firms may need to
access $US100 000 dollars a week to trade efficiently.
“Workers are idle, at home, earning no
incomes are barely able to settle insurance fees for cars, education or health
let alone afford a new coat of paint for their homes. This is a stinging blow
to the revenues Zimbabwe’s life re-insurance sector,” Thomas Sithole an actuary
and Zimbabwe´s most famous insurance blogger who runs the site Acturial Lense.
“70% of Zimbabwe´s economically active
population is not insured,” reveals analyst Delphine Maidou, CEO of Allianz Global
Corporate & Specialty (AGCS) Africa
The situation more unbearable for Zimbabwe´s
re-insurance industries because the bigger chunk of the country´s economy has
skidded into uncharted waters.
This is what the African Development Bank calls
“informal economy.”
These are your street food vending entrepreneurs, backyard
furniture manufacturers, and small scale gold diggers, small trade cosmetics
importers – exactly the kind of business folk who will balk with suspicion on
hearing the word “insurance” for their limited trades.
“As
insurance and re-insurance, we follow the fortunes of our clients. When their
business is going down we cannot grow,” says Grace Muradzikwa, one of the
country´s top insurance experts and a top executive at Nicoz Diamond,
Zimbabwe´s leading multi-product insurer.
The country´s remaining 6, 3 million
Zimbabwe citizens still in active employment, are working in this “dark
economy.” This places Zimbabwe´s insurance and re-insurance companies in dire
straights.
“Zimbabwe´s dark economy is
responsible for siphoning off about $4 billion yearly from the formal sector
where insurance companies trade,” says Thomas Sithole the actuary.
“The messiest challenge is for
re-insurers in Zimbabwe to design products that match the income profiles of
participants in the dark economy. This is a sector where your timber, shoe or corner
food traders have no registered addresses, bank accounts, water bills let alone
company tax compliance papers. How do you insure such against fire, theft or
floods and expect them to pay monthly premiums of say $50 is the million dollar
question.”
Destination risk
Zimbabwe is a tricky destination for
investors to park their money. Corporate information is scarce, when available it
is unreliable.
A weak legal system makes debt collection difficult, endemic
corruption means political elites can seize private properties and assets – and
now a currency confusion means normal transaction like the global Visa
MasterCard – are limited.
In 2016,
Zimbabwe ranked a lowly 31st out of 53 countries across Africa in Fitch BMI
Research’s latest investment operational risk index.
Trade sanctions imposed by
Australia, the EU and US in early 2002 makes the country an unattractive
destination foreign re-insurance companies to do business in Zimbabwe.
A
world-record 500 % inflation bill ravaged the balance sheets of the country
insurance and re-insurance sector and rendered clients savings worthless heaps
of cash.
The country´s non-life insurance sector where re-insurance companies sit has failed to recover up to today.
The state agency Zimbabwe Insurance and Pensions Commission admits, “A slowing down in the growth of business written in the non-life insurance sector has generally been witnessed in tandem with the slowing of Zimbabwe´s economy.”
Fast turnaround solutions should be holistic. “Zimbabwe´s public perception towards the insurance industry is at an all-time low,” says Thomas Sithole the actuary.
“Cash back schemes, no claims discount,
profit share schemes – these are perfect incentives that can be quickly
introduced to lure back Zimbabwe´s traders and workers into buying re-insurance
products. Solutions must be urgent.”
The country´s
giant re-insurance firms have been battling their feet to remain afloat in a
diseased economy.
One way they have done so is through local reinsurance
players consolidating into strong global groups as Zimbabwe cannot sustain a
closed insurance market.
“In Zimbabwe
there has been considerable risk transfer, for capital substitution for
reinsurance players. Risks are too large, too complex or too risky for the
direct writer to entirely retain to its own account,” reveals David Chinyemba,
managing director of Pan African Reinsurance Brokers, one of the country´s top
brokers
Fraud
“Roughly at least 15-20% of cases
that are settled by insurance companies in Zimbabwe are fraudulent claims.
Insurance fraud is now an infection,” says Grace Muradzikwa, the insurance
guru.
"The sad thing is some
us insurance operators are even aware of the various methods used to perpetrate
but are powerless to respond" reveals Baobab Insurance director, Tarupiwa
Tarupiwa, one of the country most prominent operators.
In a startling incident in
2014, court processes were initiated after claims that top officials at the
country state owned airline had fleeced the taxpayer of millions of Euros after
entering into fraudulent repeat re-insurance schemes.
Insurance fraud costs up to $9 billion a year according to ABI figures,
but in Zimbabwe the data is absent – or if partly available, woefully
inaccurate.
Insurance scams in the country can take sinister dimensions. In one such
scam, participants acting from the United Kingdom to Zimbabwe, stage managed a
car crash in 2015 and burnt a stolen corpse to swindle $70 000 dollars from an
insurance firm.
“The bitter truth is insurance and re-insurance players have come to the
odd acceptance that scams and fraud are inevitable and part of trading woes. It
cannot be helped.”
As Zimbabwe´s
economy plunges, offenders are tempted to stage insurance scams because the
risk of capture by verification technology is low, rewards are tantalizing and insurance
claims assessors are reactive.
“An exodus of
qualified actuaries to South Africa, EU or Australia has left insurance firms
staff with claims assessors who work manually where technology measurers are
needed,” says Thomas Sithole.
“The first port
of call is for all insurance and re-insurance industry players in Zimbabwe to
design a common database that flags scam offenders.”
Cellphone banking chips away Zimbabwe
insurance
“Mobile banking has
crippled banking in Zimbabwe,” declared the South Africa Broadcasting
Corporation in May 2016. The casualties list, no doubt, includes Zimbabwe´s
re-insurance sector.
The figures and
glaring, almost depressing for insures, says the Reserve Bank of Zimbabwe.
The
country´s mobile telephone banks sliced away $6, 1 billion in customer
transactions in 2015 leaving traditional banks and insurance firm to fight for
a reduced $3, 5 billion bone.
Zimbabwe´s populace,
smarting from a 2008 world-record inflation that gobbled their entire life
savings are wary of the word “bank” “insurance.”
They prefer to keep their
meagre savings on their cellphone, where at the punch of a finger they could
wire money in seconds.
“The cellphone is
the bank,” says banker Norman Mataruka, a senior executive for currencies
supervision at the central bank.
“There are 35 000 mobile money agents in far
flung parts of the country where banks and insurance companies don’t reach.”
This sounds a
gradual death knell for Zimbabwe´s brick-and-motor banks and related insurance
offices.
This tough new
competition is terrific to handle for Zimbabwe´s re-insurance companies.
“Non-life expenses
reached up to a frightening 42% of income in 2016, 42 per trading quarter! Such high operating
expenses are not sustainable as nearly half of the net earned premiums (net of
reinsurance) are allocated to service the operational costs of running the
insurance company,” warns Thomas Sithole the actuary
“There is an urgent need for insurers to
embrace technology and automation. Starting point will be to curb damaging expenditures
and digitalize inefficient markets.”
In conclusion, it doesn’t need a rocket
scientist to see where the country´s risk protection industry is headed.
One
can bet that unless Zimbabwe´s fundamental ease-of-doing-business problems are addressed,
insurance and reinsurance companies will continue to battle a storm of bankruptcy
and gobbled earnings.
ABOUT THE WRITER: Ray Mwareya is a
journalist at INPERSPECTIVE MEDIA and GroundUP News.
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